September 3: A big day for Europe
The European Central Bank’s Chief Mario Draghi celebrated his 68th birthday on Thursday, September 3. Stocks were up in the Eurozone with the Vanguard FTSE Europe ETF (VGK) gaining 0.06% and the WisdomTree Europe Hedged Equity ETF (HEDJ) rising 0.74%. American depository receipts of European companies listed on US exchanges also ended higher on September 3. Nokia (NOK) rose 0.96%, BP (BP) rose 0.65%, and Rio Tinto (RIO) rose 1.11%.
What led European equity high on September 3?
However, the sentiment driving the rally in stocks wasn’t Draghi’s birthday. It was the hint of the European Central Bank (or ECB) considering additional monetary stimulus to pump up the Eurozone economy. At a press conference the same day, Draghi made some market-moving statements about the economy. We present to you an overview of what was relevant from the ECB’s September policy meeting on September 3 and Mario Draghi’s press conference.
Key takeaways from the ECB’s September meeting and press conference
- The ECB decided to maintain its refinancing rate at 0.05% and its lending rate at 0.3%. The deposit facility rate will also stay put at -0.2%.
- Growth projections were lowered. Expected GDP growth for 2015 was lowered from 1.5% to 1.4%, while the projection for 2016 was lowered from 1.9% to 1.7%.
- The Eurozone may not see growth pick up any time soon. Macroeconomic upheavals in the Eurozone’s major trading partners, like China and Russia, are expected to restrict trade and export revenue.
- Stagnating economic conditions may warrant further stimulus measures from the ECB.
- The ECB won’t hesitate to expand its bond purchase program if economic conditions necessitate this move.
This news led the euro down. The euro fell by about 1.05% against the US dollar on September 3. The euro was down on expectations of more stimulus (that is, money flow) into the economy. The euro has already been depreciating for a while now.
Let’s move on to see why the Eurozone may need more monetary stimulus.